What is Keynesian Economics BY: PAUL YOUNG, CPA, CGA

Agenda

• What is Keynesian Economics?• Money flow from taxation to program spending• What is trickle down economics• Money flow from a Corporation – Public Traded• Money flow from a Corporation – GBE (Government Business

Enterprise)• Money flow from a School Board• Money flow from a Hospital• Issues facing economies around the world

What is Keynesian Economics• Keynes advocated increased government expenditures and lower

taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term “Keynesian economics” was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing aggregate demand through activist stabilization and economic intervention policies by the government. Keynesian economics is considered to be a “demand-side” theory that focuses on changes in the economy over the short run.

Source -  Keynesian Economics Definition | Investopedia http://www.investopedia.com/terms/k/keynesianeconomics.asp#ixzz4YTczh6Kk 

Government Taxation / Spending FlowConsumers

Corporations

Government Entities

Taxation Flow• Income Tax

(Personal)• Income Tax

(Corporate)• Consumption

Tax• Income from

GBE• Dividends

(LCBO)

Spending Flow• Government

Transfers (Healthcare, infrastructure, post-secondary education, childcare

• Direct Program • Healthcar

e• Education• Social

Services• Public

Safety

What is Trickle Down Economics• Trickle-down economics, or “trickle-down theory,”

argues for income and capital gains tax breaks or other financial benefits to large businesses, investors and entrepreneurs in order to stimulate economic growth. The argument hinges on two assumptions: all members of society benefit from growth; and growth is most likely to come from those with the resources and skills to increase productive output.

Source  Trickle-Down Theory Definition | Investopedia http://www.investopedia.com/terms/t/trickledowntheory.asp#ixzz4YTi1ElxV 

Corporation / Money Flow / Canada Tire

• Source - http://investors.canadiantire.ca/English/investors/financial-reporting/annual-disclosures/default.aspx

Commentary:• Employees

(personal Income tax)

• Spending on goods and services (domestically or internationally

• Logistics• Facilities• Other spending• Corporate

taxation• Sales Taxation

(GST and PST)

GBE - LCBO

• Source – http://www.lcbo.com/content/dam/lcbo/corporate-pages/about/pdf/LCBO_AR14-15-english.pdf

Commentary:• Dividend flows to general

revenue• LCBO buys locally

produce wine, beer and liquor

School Board - Flow

Source - http://www3.dpcdsb.org/Documents/Financial%20Statements%2031%20August%202016.pdf

Commentary:• 90% of the school

board is supported by taxation (Provincial grants:

Expenses• 76% of the school

cost is payroll• Payroll taxes (CPP,

EI• Pensions• Income tax• Benefits

Hospital - Flow

Source - https://www.rvh.on.ca/account/SiteAssets/SitePages/account/2016%20RVH%20Audited%20Financial%20Statements.pdf

Commentary• Approximately 70%

of funding comes the government

• Doctors and Nurses compensation is tied to contracts

• Many hospitals have donor programs to support either hospital expansion or new equipment

• Money Flow• Spending • Taxation

(Personal)

Starting a business• Takes capital• Many high growth companies rely on stock options as

well as other deferred compensation a part of growing their business• Small business are hurt by taxation, hydro, red

tape/regulations• The bulk of all new jobs created are by small business

How do pension funding work? • Pension funds by assets (investments) with pension funds

generated contributions made by both private and public sector employees• Pension funds are looking for ways to maximized the

Pension Fund returns• If you increase taxation then you actually are hurting

pensions funds, i.e. less income (dividends) for pension funds• Defined Benefit Plans • Guaranteed pensioners a set amount to paid out to them.

Harper / Trickle Down Economics

• Source – http://globalnews.ca/news/1356467/tax-cuts-since-2005-net-canadians-30b-pbo/

Fiscal Management – Harper Keynesian Examples• Harper increase

program spending• Harper established

dedicated funding for infrastructure

• Harper honored the transfers to the provinces

• Harper moved OAS to 67

• Harper is not responsible for mismanagement at the provincial level

Commentary• After the 2008-2009 recession is when

Canada had one of the strongest economy in the G-7

Risk/Issues with Keynesian Economics

• Source - http://www.forbes.com/sites/peterferrara/2012/07/12/obamanomics-the-final-nail-in-the-discredited-keynesian-coffin/#4e241e7a2167

Forbes Video:https://www.youtube.com/watch?v=yOl37VcG89c&t=28s

Commentary:• USA tax system is

complicated• USA does poor job of

redistribution of wealth

• USA income inequality worsening

• Government waste money or about 1/3 of all spending is wasted

Issues facing an economy• Government Deficit and Debt• Mismanagement of government moneys• Structural deficits• Government trying to be everything to everyone

• Size of the economy• Consumer spending drives 2/3 of the economy• Exports are key area for many countries (Canada drives 25% of their GDP via exports or

about $520B)• People want cheat goods and services • Taxation • You cannot tax people to prosperity

• Demographics• Aging population tends have different buying patterns• Part-time vs- Full-time jobs (Precarious work)• People are living longer

Summary• Many people misunderstand either Keynesian Economics or Trickle

down economics• Private investment drives job creation (market-supply side of

economics)• Personal spending drives 2/3 of the economy. • Pension funds invest pension assets into companies as part of

managing the returns• It is not one policy that drive business expansion, but multiple

policies